What is the Point In ISAs?

This is a question often asked and thought we would take this opportunity to lay out some of the facts in relation to Cash and Stocks and Shares ISAs.

Cash ISAs

Cash ISAs have been less popular in recent years as a consequence of the low interest rate environment and investors have rightly questioned the value of investing in this type of asset. Historically low ISA savings rates coupled with rising inflation has meant that, in some cases, the real purchasing power of deposits has been adversely affected. As a result, many savers and investors have opted to explore other opportunities however, given that interest rates are likely to rise in the near future ISAs may still be a good home for cash in the longer term.

Whilst ISAs offer no tax relief on the way in, once funds are placed in an ISA, they can grow in a tax efficient way and can be drawn on in the future without incurring a tax liability. This can be especially valuable when you have reached retirement and are looking to draw an income in the most tax effective way possible.

With this in mind, it may be prudent to reconsider the use of Cash ISAs as part of your longer term financial planning.

Stocks and Shares ISAs

Stocks and Shares ISAs offer a different kind of proposition but with the same valuable tax efficient benefits associated with Cash ISAs. Stocks and Shares ISAs allow for up to £20,000 (tax year 2017-2018) to be used to invest in any of the below assets:

  • Shares in companies
  • Unit trusts and investment funds
  • Corporate bonds
  • Government bonds

There is complete flexibility with regards to what mix of assets you buy and there is no obligation to invest the full £20,000 allowance. There is no Income or Capital Gains Tax liability to consider and as with Cash ISAs, funds can be accessed at any time without penalty charges.

Whilst it is understood that assets with exposure to the equity market are not appropriate for every investor, there may be significant advantages to be gained from holding qualifying investments within an ISA Wrapper.

In summary, there are clear benefits associated with the various types of ISA and may be appropriate for an investor depending on factors such as their investment objectives, time horizon, risk profile and capacity for loss.

Given that the 2017-2018 tax year is close to ending (April 5th), please feel free to get in touch with us here at Tru Wealth should you wish to discuss a top up, a review of your current ISAs or to assess your options for the forthcoming tax year.


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